• Warm-up: Look at the NFL on p.
160...How can a monopoly control output
or price in an industry?
• In a capitalist society, when is it ok for the
government to regulate business?
• • Does new technology provide for the
better good of all Americans?
• • Why do only a few people become
extremely wealthy?
• • Can an individual be forgiven for
misdoings if they give away a lot of
money?
2006
•
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•
•
•
•
•
•
•
•
Top 10 Largest American Companies
1
Wal-Mart
2
Exxon-Mobil
3
General Motors
4
Chevron
5
Ford Motor Co.
6
ConocoPhillips
7
General Electric
8
Citigroup
9
AIG
10 IBM
Industry
Retailing
Oil & Gas Operations
Automobile
Oil & Gas Operations
Automobile
Oil & Gas Operations
Conglomerates
Banking
Insurance
Software
• RankCompanyRevenues
($ millions)Profits
Wal-Mart Stores 2Exxon Mobil
284,650.019,280.0 3Chevron 163,527.010,483.0
4General Electric 156,779.011,025.0 5Bank of
America Corp. 150,450.06,276.0
6ConocoPhillips 139,515.04,858.0 7AT&T
123,018.012,535.0 8Ford Motor
118,308.02,717.0 9J.P. Morgan Chase & Co.
115,632.011,728.0 10Hewlett-Packard
• Key Concepts/Definitions:
• Monopoly: exclusive control of a commodity or service in a
particular market, or a control that makes possible the manipulation
of prices.
• Dividend: a sum of money paid to shareholders of a corporation out
of earnings.
• Shareholder: a holder or owner of shares, esp. in a company or
corporation.
• Captain of Industry: the head of a large business firm.
• National Market: a region in which goods and services are bought,
sold, or used.
• John D. Rockefeller: United States industrialist who made a fortune
in the oil business and gave half of it away (1839-1937)
• Andrew Carnegie: 1835–1919, U.S. steel manufacturer and
philanthropist, born in Scotland.
Ch 7
Market Structures
Section 1
Perfect Competition
Perfect Competition
large number of
A market structure in which a _____
firms all produce the same product
Perfect Competition assumes that the market is in
equilibrium
__________.
• There are four Conditions for Perfect
Competition
1. Many buyers and sellers
2. Sellers offer same
_________
product
3. Buyers and sellers are well informed
enter & exit
4. Sellers are able to ____________
market
Barriers to Entry
Imperfect Competition
Lead to __________
• Barriers to entry may lead to imperfect
competition…these include:
• Start-up Costs
• Technology
Which of the following come close
to perfect competition
1.
2.
3.
4.
5.
6.
7.
TV’s
Bottled Water
Pizza
School Buses
White Socks
Baseballs
Paper clips
Section 2 Monopoly
barriers prevent firms
• A monopoly forms when ______
from entering a market that has a single
supplier.
• The problem with monopolies is that they can
advantage of their market power and
take _________
high prices
charge _________.
Given the law of demand,
this means that the quantity of goods sold is
lower than in a market with more than one seller.
For this reason, the US has outlawed some
monopolistic practices.
Forming a Monopoly
• Economies of scale: are characteristics
that cause a producers average cost to
____
drop as production rises
____.
• This is because the large initial fixed costs
like the cost of the factory and machinery
can be spread out among more and more
goods as production rises.
Monopoly
• Natural Monopoly: is a market that runs
most efficiently when one large firm provides
all of the output. If a second firm enters the
market, competition will drive down the
market price charged to customers and
decrease the quantity each firm can sell.
Not both can cover costs and one or both
will go out of business. ex. Public utilities
• Government Monopoly
• A monopoly created by the government
________.
Patents
– Technological Monopoly: ex. _______
• Thomas Edison obtained 1,093
_____ patents in the US
& had a monopoly in the motion picture industry.
In 1917, the Supreme Court ruled it was illegal,
dissolving Edison’s control.
Gov Monopoly cont.
• Franchise: the right for one firm to sell a
exclusive market ex.
good or service within an __________:
Coke (at school), national parks
– License: government
_________ grants firms the right to
operate a business: ex. Radio/TV
– Industrial Organizations: sometimes
government allows companies to restrict
_____
number of firms in a market: ex. NFL, MLB
Price Discrimination
• When monopolists can divide consumers
into two or more groups and charge a
different price.
• Targeted Discounts
– Airlines, Rebates, Senior Citizen, children free
• Division of customers into groups based
on how much they will pay for a good
– Also done by any company with market power
• The ability to control prices and market output
Limits of Price Discrimination
• Market power (rare in competitive markets)
• Distinct customer groups (______)
elasticity
• Difficult resale
• FYI: Price Discrimination on an international
scale is known as dumping
_______. When this occurs a
a lower price in a foreign market
firm charges ______
than it does in its home country…sometimes
production cost
even lower than ____________….Why
would a
firm engage in dumping? Is it legal or illegal?
•
Section 3
Monopolistic Competition and
Oligopoly
Monopolistic competition
– Many
____ companies compete in an open market
to sell products that are similar but
_________.
not identical
– The difference between perfect competition
and monopolistic arise because
monopolistically competitive firms sell goods
substituted for
that are similar enough to be ________
one another but are not identical. Ex. Jeans
• Four Conditions
1.Many Firms (_________)
small start up
no patents
2.Few artificial barriers to entry (_______)
3.Slight Control over price
4.Differentiated products
Non-Price Competition
(other than Price)
1. Physical characteristics
– Shape, color, size, texture, taste
2. Location
– Colleyville v. Garland 
– Beverly Hills v. Bronx
3. Service Level
– Whataburger v. Chili’s
4. Advertising, image, or status
– Perception v. reality
Oligopoly
few large profitable
• Market dominated by a ________________
firms. Four largest usually supply 70-80%
_____ of
product.
High Barriers to entry – High start up cost
– ___________
– Ex. Cars, movie studios, airlines
– Collusion : an agreement among members of an
oligopoly to set prices and production levels
fixing (diamonds!) agree to sell at same price
• Price
___________
• Cartels
_______: agreement by producers to coordinate prices and
production…illegal in US (trusts are like cartels and they are
also illegal)
Baby Formula!
• In 1993 three major producers of baby
formula paid $200million to retailers and
wholesalers of their products. This was
part of the settlement of lawsuits that had
been brough against the three firms,
claiming they had conspired to fix prices.
Section 4
Regulation and Deregulation
• Regulation
– Breaks up monopolies (like Rockefellers’
Standard Oil & Carnegie’s US Steel)
Blocks Mergers that reduce competition and
– _____________
lead to higher prices (Grocery Store
Scanners)
– Preserve incentives
Deregulation
longer decides what role
• Government no
_______
each company plays in a market and how
much it can charge its customers
– Trucking, banking, airlines, railroads, TV, cell
phones